139 - The Cosmos Thesis with Sunny Aggarwal & Zaki Manian

✨ DEBRIEF | Unpacking the Episode: https://shows.banklesshq.com/p/the-cosmos-thesis-debrief Sunny Agarwal and Zaki Manian are crypto OGs that have been in the Cosmos ecosystem and community from the very beginning. Sunny started the Blockchain at Berkeley, the largest student organization for crypto in the world, and also co-hosts the Epicenter podcast. Zaki is helping ship Cosmos’s IBC, is working on the validator ecosystem, and is also an advisor to the Electric Coin Company, the org behind Zcash and is also a co-founder of Iqlusion. On today’s episode, Sunny and Zaki share what the Cosmos Thesis is, how Cosmos is similar and different to Ethereum, and what Cosmos’s ATOM 2.0 unlocks for the ecosystem. Zero to 60 in one episode. This is the Cosmos Thesis. ------ 📣 Galxe | Explore Crypto’s #1 Credential Network https://bankless.cc/Galxe ------ 🚀 SUBSCRIBE TO NEWSLETTER: https://newsletter.banklesshq.com/ 🎙️ SUBSCRIBE TO PODCAST: http://podcast.banklesshq.com/ ------ BANKLESS SPONSOR TOOLS: ⚖️ ARBITRUM | SCALING ETHEREUM https://bankless.cc/Arbitrum ❎ ACROSS | BRIDGE TO LAYER 2 https://bankless.cc/Across 🦁 BRAVE | THE BROWSER NATIVE WALLET https://bankless.cc/Brave 💠 NEXO | CRYPTO FINANCIAL HUB https://bankless.cc/Nexo 🔐 LEDGER | NANO HARDWARE WALLETS https://bankless.cc/Ledger ⚡️FUEL | THE MODULAR EXECUTION LAYER https://bankless.cc/Fuelpod ----- Topics Covered 0:00 Intro 8:05 Zaki & Sunny 10:08 The Cosmosverse Conference 18:38 Cosmos’s Central Thesis 23:10 Metaphors & Ethereum vs. Cosmos 29:18 Trade-offs 36:13 Monetary Premium Thoughts 40:18 Osmosis & Power Laws 48:24 Stablecoins on Cosmos 54:13 L2s vs. Cosmos 1:09:11 Cosmos vs. Polkadot 1:14:52 MEV Problems & Solutions 1:23:24 ATOM 2.0 1:32:16 Mesh & Interchain Security 1:41:50 Does ATOM Break Top 10 Tokens? 1:43:43 Will ATOM Flip ETH? 1:44:50 The Future of Cosmos 1:49:03 How to Explore Cosmos 1:50:44 Closing & Disclosures ------ Resources: Sunny Aggarwal https://twitter.com/sunnya97 Zaki Manian https://twitter.com/zmanian ATOM 2.0 https://forum.cosmos.network/t/proposal-draft-a-new-vision-for-cosmos-hub/7328 The Inevitability of UNIchain https://medium.com/nascent-xyz/the-inevitability-of-unichain-bc600c92c5c4 ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here: https://newsletter.banklesshq.com/p/bankless-disclosures

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  Digital markets in the future will be all markets. And I'm building for a future in which digital markets are open source public goods. I don't really care about anything else. I just view the tools we've built as Cosmos as an essential part of getting there. I also think Ethereum largely shares this vision and so feel very aligned with Ethereum. But like, if we're successful, we will have open source digital markets that provide economic coordination for the entire human race.

• 0:30Ryan Sean Adams?

  Welcome to Bankless, where we explore the frontier of internet money and internet finance. This is how to get started, how to get better, how to front run the opportunity. This is Ryan Sean Adams. I'm here with David Hoffman and we're here to help you become more bankless. Today, we are going to explore the Cosmos together. This is the Cosmos thesis. We brought on Zachy and Sunny, who are developers, app developers, and longtime Cosmos community members to talk about the Cosmos thesis. This, I think, will give you a zero to 60 on Cosmos in 90 minutes. I think it's a canonical episode for this community, for this ecosystem. In fact, the guest said, as they were leaving, "This is probably the best Cosmos episode they've ever recorded." You've ever heard, yeah. You be the judge after this episode.

• 1:15Ryan Sean Adams?

  A few things to look out for. Number one, we talk about the Cosmos thesis itself, how it's similar versus how it's different to Ethereum. Number two, we talk about Ethereum as a tree versus Cosmos as a fungus. If that makes no sense to you now, listen to the episode and you'll see what we mean. The difference between the fat protocol thesis and the tall app thesis. That's another distinction we make. And Adam 2.0, a new white paper was just released with new token economics and a whole new Cosmos hub design. We talk about the new features and differences in that design. We also asked Zachy and Sunny if they think Adams could one day flip Ether in terms of total crypto market cap. David, there's so much we unpacked in this episode. Why are we talking about it?

• 2:00Ryan Sean Adams?

  Cosmos, that is. And what should listeners look out for as they listen?

• 2:04David Hoffman?

  The Cosmos ecosystem, the Cosmos community, the Cosmos philosophy has always paired nicely with Ethereum while also being different. I remember reading the Cosmos white paper in 2018 and really having like an aha moment, like yo, this is something real that's new. And it was specifically about cross-chain interoperability. And even when I was talking to Sunny at ECC forever ago, he was, he said like the Cosmos and Ethereum communities have always been very philosophically aligned. And I think when we get into this episode, the listeners should really pay attention to the, I think, the accepted truth that Cosmos and Ethereum converge at their logical conclusion in their design philosophy at the same place.

• 2:49David Hoffman?

  They both believe in the same general outcome of how these ecosystems look like, but what they're, where they differ is how they get there. And the, how they get there, the genesis stories for these chains does impact what these things ultimately look like. Cosmos started its journey as a network of interconnected sovereign application chains that weave themselves together, later adding a shared security model. Ethereum started its journey with the central security model of Ether, proof of work, a canonical, single monolithic chain, folding into now the beacon chain, and then many chains organize around it. We have the app chain model in Cosmos, we have the layer three model in Ethereum. We're each going after the same design structures.

• 3:34David Hoffman?

  So the listeners should really pay attention to what are the net consequences of a system that emphasized the security first, which is Ethereum, and Ether, the asset first, which is Ethereum, versus an ecosystem that emphasized the sovereign app chain model first and then added security later. What are the net effects of that? Overall, I'm just, we've used this metaphor in Bankless and I use this, I've used this in the podcast, that if you reroll the dice of the crypto industry over and over and over again, you will see something like Ethereum. Unfold out of that 100% of the time, 99.9% of the time. And I think that's also true for Cosmos. And that is why I think this Cosmos and Ethereum is like two sides of the same coin.

• 4:17David Hoffman?

  We will always see these two models and I don't, and I think these two models, the app chain model, the central security model of Ethereum, that is what crypto has to offer. These are the logical conclusions of crypto design philosophy, in my opinion. So I think with that context, I think the listeners should be pretty well equipped to go into this episode and get completely downloaded as to the whole Cosmos vision.

• 4:39Ryan Sean Adams?

  The other thing, of course, to think about as you're listening to this episode is where are the investment opportunities in Cosmos? And David, I think I want to talk to you a little bit about that, some of my thoughts on investment opportunities, but we'll save that for the debrief. And of course, the debrief is available for you who are premium members. It's our episode after the episode where we talk about the episode that was. So upgrade to premium membership if you want to catch that as well. Full disclosure going in, I own Atom tokens. It does not represent more than 5% of my holdings. We take disclosures very seriously at Bankless, so we're starting to mention them at the top of every episode. There's always a link in the show notes if you want access to see all of our bags. Our full disclosures are located there.

• 5:23Ryan Sean Adams?

  Guys, we're going to get right to the episode with Zaki and Sunny from Cosmos. But before we do, we want to thank the sponsors that made this episode possible.

• 5:31David Hoffman?

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• 6:15David Hoffman?

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• 6:56David Hoffman?

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• 7:40David Hoffman?

  efficient and optimized, opening up the design space for developers. And lastly, Fuel brings a powerful developer experience with its own domain-specific language, Sway, and a supportive tool chain called Fork. With Fuel, you can have the benefits of smart contract languages like Solidity while adopting the improvements made by the Rust tooling ecosystem, letting the Fuel development environment go beyond the limitations of the EVM. If you want to learn more, there's a link in the show notes to see how you can get involved with a Fuel network.

• 8:06Ryan Sean Adams?

  Bankless Nation, we are talking Cosmos today with two of the best experts we could find in the space. Sunny Agarwal is a crypto OG. He's been in the Cosmos ecosystem since the very early days in the community, since the very beginning. He's a man of many hats. He's been all around the space. He started the blockchain at Berkeley, a student club. This was the largest student organization for the crypto world at the time. And he's also the co-host of the Epicenter Podcast. Sunny, how you doing?

• 8:34Speaker 00

  I'm doing great. You know, I just got off of three days of Cosmosverse, which was the big Cosmos conference. And so in decompression mode right now.

• 8:43Ryan Sean Adams?

  I understand that both of you guys are recovering from Cosmosverse. So hopefully we'll get some of that energy back into this podcast as we go through. We also have Zaki Manian. He also wears many hats in the Cosmos and crypto space. He's been in the Cosmos ecosystem from the very beginning as well. He helped chip most recently Cosmos' IBC, which is an interchain blockchain protocol. He's also working on the validator ecosystem. He's been an advisor to Electric Coin Company. You remember Zoku and team from Zcash. And he is a co-founder of a staking provider as well. Zaki, welcome to Bankless. How you doing?

• 9:24Speaker 00

  I'm doing great. Cosmosverse was the best, but like, I'm glad that I flew out of Columbia. I was like, I was like, do I stay in Columbia for DevCon? And then I was so tired. I was like, I'm gonna leave.

• 9:37Ryan Sean Adams?

  So this was in Columbia then?

• 9:39Speaker 00

  Yeah, we did it in Medellin, Columbia.

• 9:43Ryan Sean Adams?

  Nice. You know, Columbia is getting a lot of love this year from the crypto community, with DevCon being there and Cosmos being there, for sure. It's great.

• 9:52Speaker 00

  It was, there's actually a Bitcoin cafe, like a crypto cafe in Medellin that we got to, we got to do some events at. And I, you know, I think Bogota is going to be very different, but from the experience of Medellin, ended up being phenomenal.

• 10:08Ryan Sean Adams?

  So how was the conference? For people that weren't able to attend, and also people that are wondering what the temperature is during the bear market, what was the energy like? What was the vitality like? How many people were there? Fill us in on what the Cosmosverse conference was like.

• 10:23Speaker 03

  I don't think you could tell that it was a bear market. Uh, we had like, so you know, we had, this is the second Cosmiverse. We had, the first one was last year in Lisbon. Uh, it was like a sandwich in between like Eat Lisbon and the Solana Conference. And I think there were maybe like five hundred or so people there uh at Cosmiverse this year, I think there was about fifteen hundred people. So it's like three times bigger while we're in a bear market. And like, you know, last time, there was a lot of like overflow traffic coming from the other places. It's like here, it's like everyone who came here like came for Cosmiverse, right? And like, so yeah, just like shows how much like there's a lot of excitement and like growth in the last one year even.

• 11:05David Hoffman?

  And a little harder to get to uh than Lisbon.

• 11:09Speaker 03

  Yeah, definitely.

• 11:09Speaker 00

  Yeah, you couldn't get there. Uh, you couldn't, uh, uh, uh, you, you know, you weren't already there for other stuff where it's like, yeah, I'd say a third or more people were just like, okay, like I'm in town for uh uh, uh, for Breakpoint and for Nearcon, I might as well do Cosmiverse two. Um, that was kind of the, the, you know, it was all, I, I also like, just like, again, the origin of this conference is, is like very typical of Cosmos, which is like a person uh named CryptoCito, um, sort of, uh, he's a YouTuber, uh, uh, has a relatively popular YouTube channel about crypto.

• 11:49Speaker 00

  He got interested in Cosmos in early twenty twenty one. He started to build up a following in the community. Uh, Jack uh Zamplin, who is my co-founder, another one of my projects called Somelier Finance, um, has another validator business and is also like a core dev in the ecosystem. So Jack uh and I had been kind of looking for people to help us bring the message of Cosmos to the world. And we found that, you know, CryptoCito was doing a really good job. Uh, we ended up spun, we had taken up, there was a marketing DAO that was set up called Prop thirty four that took money from the Cosmos Hub Treasury. We ended up sp- spending what was remaining in that to sponsor and like give CryptoCito the funds to do uh Lisbon.

• 12:32Speaker 00

  This time it was like multiple chains, so it was the same person now. Um, you know, held this much larger conference in a much more difficult location. Uh, he had a staff like a hundred and fifty people working on it. It was sponsored directly from governance proposals for multiple Cosmos chains.

• 12:49David Hoffman?

  Hmm.

• 12:50Speaker 00

  And you know, 1,600 people could throw up. There were, there were after parties and events every night. It did not feel like a bear market at all. And, uh, and people, I think. And then like the other thing that was really unique about this is there's literally never been a Cosmos conference where anything was announced, like really, like the little chains would announce stuff, but like ecosystem level announcements had never happened before. Uh, at a conference and we actually were able to do both the Atom 2.0 white paper and, uh, the announcement of USDC coming natively to Cosmos at our conference.

• 13:27Speaker 03

  David, I remember like we talked about at ETC, you know, we, I was saying like ETC's, when we had our interview there, I said, ETC is my favorite conference. Uh, and part of it is because, you know, I, I don't know, I, I just always feel that ETC has a very community. Just the fact that it's a community organized conference rather than foundation organized conference. It always had like a more interesting energy to it to me than even DevCon. I, I, I like ETC better than DevCon and like every other ecosystem, it's always like foundation thrown conferences, right? Cosmos feels very much like ETC for the same reason. It's not a foundation thrown conference. It is like random community member decided to do this.

• 14:04David Hoffman?

  Yeah. And it's very emblematic of what Cosmos actually is, which is a little bit more bottom up than top town orchestrated. Uh, and so what, what would you credit the success of this conference while, uh, the, the Cosmos, uh, Cosmos verse was harder to get to in a different part of the world. Uh, three times as many people showed up while crypto prices have gone in one third, right? And so, you know, one third, the amount of, of capital in this space, yet three times the amount of people showed up like, wh- why? What, where's, where's all this energy in Cosmos coming from? What would you guys credit the, uh, the vitality, uh, the source of vitality here?

• 14:39Speaker 03

  I mean, Cosmos as an ecosystem has just grown a lot. I think especially, you know, in the last three, four months, I think. I think the DYDX sort of announcement of like switching over to Cosmos. Uh, you know, I know Zaki was pretty involved with that. What like that, I think just got a lot of people's attention where, you know, it goes, it's a, and. People are like, wait, here's this like project that's like been building on Ethereum for forever. And like, you know, why did they suddenly decide to like, you know, make this sort of switch, right? And so people started to look into like, looking at the reasons that why like D Y D X did it. And started learning more about, you know, the Cosmos thesis is very complex.

• 15:20Speaker 03

  And, you know, it's like, you know, when you're switching from Ethereum to, I don't know, Avalanche. Like, oh, okay, cool. It's faster. Yay. It's like, no, but like, you know, when you're switching to Cosmos, there's like a whole set of like fundamentally different things that we're doing that like, uh, and people took one to do with the D O Y D X announcement, people started to actually look into that. And I think a lot of people just got very interested in the theses that we have at Cosmos. And that kind of just like snowballed like from there over the last few months.

• 15:48Speaker 00

  Before we break down, I think the thesis and how this like really complicated idea of how we're different from Ethereum, um, and how we're basically different from the blockchains that most people are probably familiar with. The, uh, I'll, I'll also say it was just like, you know, we are also basically like, what? Four or five months out from the Terra collapse. And Luna was built on top of the Cosmos technology stack. It was, it was part of Cosmos. It was connected to I B C. The anchor carry trade passed through both the Cosmos hub and, uh, Osmosis in a very large way. So we were very economically connected to it.

• 16:29Speaker 00

  It's collapse was with almost felt like, felt like was a devastating blow to the ecosystem.

• 16:37Speaker 00

  You know, almost everybody lost money. It was like, it was a huge thing. And, uh, you know, and I don't know, you know, we, we can, we, it's certainly if we want to talk about, you know, how we all feel about the, the whole U S T story. But it was, it did feel like there was a moment at which there was a bottom there. Where we kind of felt like, you know, it was like unclear whether or not Cosmos was really going to, uh, how long it was going to take us to recover. And the recovery happened like far more quickly than anyone anticipated. And like, you know, it basically, I got, I got so much busier in like, maybe like two weeks after the Terra collapse.

• 17:19Speaker 00

  And it's just like not slowed down like, uh, at all since then.

• 17:25Ryan Sean Adams?

  Yeah, that's really interesting. You're right. This is not long after the Terra collapse. Would you guys believe that was just like less than five months ago when that whole thing imploded?

• 17:35Speaker 03

  It's been a wild five months for us.

• 17:38Ryan Sean Adams?

  Yeah, I bet. And there's definitely a lot of excitement. One thing I've been observing, of course, in the Cosmos ecosystem is the amount of building that's going on. There's also this renewed interest, maybe through DYDX and others, but even in the Ethereum community around app chains, which I'm sure we'll talk about a little bit more. And really, I think our goal for this episode is, you know, David and I cover a lot in the Ethereum ecosystem on the podcast, right? So you guys have to teach two Ethereum idiots like what Cosmos is, what it's all about.

• 18:13Ryan Sean Adams?

  I will say, I was involved in the Cosmos ecosystem in the early days. And so it's always been a community that's been kind of, I've been observing and I've liked and I've appreciated the efforts of. But you guys have come a long way as well. Cosmos, the idea, has come a long way. And we want to talk about that trajectory. I think we also want to talk a little bit about the Terra Luna collapse, but let's save that maybe until a little bit later. First, let's talk Cosmos, the idea. And David said this to me before we recorded, that you told him, Sonny, Cosmos has been called an idea more than an actual thing. Those are your words, I think, Sonny.

• 18:56Ryan Sean Adams?

  Cosmos being a thing, isn't a thing, it's more of an idea. What do you mean by that? What is the idea of Cosmos? What is the central thesis?

• 19:05Speaker 03

  Yeah, sure. The central thesis of Cosmos was that, you know, we are going to see a world of not a few blockchains, but many, many blockchains, most of them being application-specific blockchains or app chains. And that these, and there's no such thing as a single final settlement layer. The entire, in the real world, there is no final settlement layer. We're gonna have many, many settlement layers and they, you know, every blockchain is going to be the settlement layer for its own native assets and its own native state. And that's what gives it fundamentally sovereignty, right?

• 19:47Speaker 03

  Rollups and other, you know, systems, they don't have true sovereignty from, from the main chain, right? The main chain is what finally dictates, uh, what the, it's the final arbiter of truth i- in, you know, in this globalized system. While Cosmos is a very, you know, we, we, we're all like localists, basically. We, we believe that like, hey, we, we're not trying to build the world computer as Ethan Buckman puts it. He, we're trying to build community computers and let these community computers all, uh, talk to each other.

• 20:20Speaker 03

  So, yeah, that's, I know, Zaki, you wanna add anything to that?

• 20:25Speaker 00

  Um, all I will say is, so there's another thing though, that Sunny, um, and that like the Cosmos thesis really believes, which is, you know, so one of the things we say is that like Cosmos is coming to kill your fat protocol thesis.

• 20:42Speaker 00

  The, uh, so the fat protocol thesis is that like, the way that blockchains will accrue value is that you'll build a blockchain. It'll, you know, typically a protocol with a token, that token will have a bunch of apps on top of it. But because the, the, the infrastructure layer and the network effects around it are represented by the token, that's where the most value will accrue. And the Cosmos thesis has been from the get-go that the, where the value accrual layer is, is the app layer. That the, that like, it's the application layer that is the thing that, and that the thing that is closest to the users. Um, it's the, it's, it's the application layer where intent and order flow and everything originates.

• 21:24Speaker 00

  Um, and that's the layer of the system, uh, where the value will accrue. Um, and we basically purpose-built a blockchain.

• 21:33Speaker 00

  Stack for people to build the best possible app layers rather than thinking that like, hey, I built another fat protocol.

• 21:42Speaker 03

  What an analogy that I like to pull to is like, you know, if you're in the early web in, you know, in the nineteen nineties, you know, a lot of people were thinking that the way to bet on the web was AOL and CompuServe. But now with like retrospect, we know it was Google and Amazon, right? The apps are what were sticky and actually had user relationships and the infrastructure layers, uh, you know, really what actually what ended up actioning was the biggest apps actually ended up building their own infra layers and became actually the biggest infra providers as well through like AWS. But really it is the, the app developers are the ones who like, you know, they'll, they'll move between infrastructure providers, but users are sticky to the applications.

• 22:24David Hoffman?

  So we wanna, we wanna, uh, leave that out there. So one idea you're presenting is rather than fat protocol, fat app thesis. Would that be a way to summarize what you just said? Cosmos is fat app.

• 22:35Speaker 03

  I actually like this term called tall apps because one of the things, at least with osmosis, what we really believe in is like vertical integration. So like, you know, we build our front end, we build our DEX modules, but we build the chain itself and we just happen to build like the primary wallet for the Cosmos ecosystem as well. But we have this like, you know, the what, what we, what we actually take a lot of inspiration from is like Apple, which is like a very vertically integrated system, but that like gives them, I think, the best UX of any, like any, uh, product line, right? And so, you know, I call these the tall apps, right? Vertically highly vertically integrated.

• 23:12David Hoffman?

  So just to put a, a visual, a metaphor on this whole thing, uh, Ethereum has like, it's got this one canonical layer one. And then we have, um, a proliferation of layer twos. There's like five or six real big ones. And then like now, right now is like a, a big conversation going on in the Ethereum space with layer threes. And this kind of looks like a tree. There's like a big central tree trunk. Uh, there are like four or five smaller branches, but still pretty big that come out of this tree trunk. And then they fracture off into like thousand And thousands of smaller branches and twigs that eventually turn into leaves. And maybe these leaves can be like the applications that, you know, capture the energy of of the sun, for example. But it all it all collapses down to a central point, a central trunk.

• 23:57David Hoffman?

  And that was really the Ethereum beacon chain and ETH staking at the very, very bottom of this whole thing. The Cosmos model is a little more of a of a mesh network. I kind of want to say a spider web, but even a spider web has kind of like a center point, but it still kind of looks like a more flat. There's not actually a point in the middle. And these things weave together as like a

• 24:21Speaker 00

  The actual metaphor is, or like the correct analogy is like a fungus, the mycelial network that like pervade the like forests and the earth. And and do make it so that the trees can actually live.

• 24:35David Hoffman?

  Right. Yes, that's that's yeah, you have definitely used this metaphor, but much better than I have, but that's definitely right. It's Google searching mycelial network for those that don't have an image in their head as a result of that will definitely definitely help.

• 24:48David Hoffman?

  And so the and so the idea here is that like, is it and the cool thing about the mycelial networks is that they're just like automatically resilient because there is no central focal point. Can you guys kind of just like lean into this metaphor and help me unpack it a little bit more?

• 25:04Speaker 00

  So I think one of the big things that we've really believed in in Cosmos is that like, we do think that like, if there was like a core difference of of vision, let's say between like Sunny and I and Vitalik is this idea that like, so like, we we think and like these, I'll try and like quickly unpack the argument like we're like my perception of Vitalik's views and I our perception of our views. Which is, okay, like Vitalik's view is like monetary premiums are really hard, but it's really hard to build like a secure decentralized censorship resistant system without securing it using a monetary primitive.

• 25:47Speaker 00

  So you have this thing with where you have the the root monetary premium chain, which is the beacon chain. And then everything descends from that monetary premium chain. Is secured by the and like reinforces with that monetary premium chain.

• 26:03Speaker 00

  You know, Sonny at Cosmaverse presented this idea of mesh security, where Cosmos chains actually opt into additional slashing conditions around each other. We believe in like ad hoc economic networks forming. So, you know, the, you know, you have these like natural, natural trade routes, of which the, you know, USD Carry Trade was one of them. But like you have trade routes between Atom and Osmosis. You have a number of large crypto exchanges run their own Cosmos chains, including OKX and Crypto.com. So then you have trade routes between their user bases and other Cosmos chains.

• 26:47Speaker 00

  And you see this like, what we are sort of expecting is this like, network of value to form between these community computers. And if, and like, some of the ideas that we're exploring now and are sort of in their, in our, in our vision of the future is to make sure that security and economic, security can travel with economic interdependence, but you don't need this like root structure.

• 27:13Speaker 03

  Yeah. The, like, so I, like, an example of this, what, what, it would be, chains provide bilateral security agreements to each other. So in this app chain model, people have always asked like, oh, how are you going to get enough security on every individual app chain? The analogy I like to give, you know, I like geopolitical analogies. And so for me, the example is NATO. NATO is a collective of sovereign countries. They all have their own governance systems. They don't meddle in each other's internal politics. But they have a security, a mesh security system, right? They, if Article Five says that if any one of the NATO countries gets attacked, they all rush to each other's defense. And I think the same thing happened, will happen with Cosmos chains as well.

• 27:57Speaker 03

  And it will be based a lot off, what, I think what Zaki's point was, it'll be based a lot off of economic relationships. So if you look at, so I'll give an example of Osmosis and Axilar. So Axilar is, you know, currently the most popular bridge between, you know, Ethereum and the Cosmos ecosystem. Osmosis is a DEX. Osmosis makes up about 70% of Axilar's TBL right now, while four of the top 10 assets on Osmosis are ETH, WBTC, DAI, and USDC are coming via the Axilar Bridge. So it's like, hey, we have such high economic relationship with each other. It would suck a lot for Osmosis if Axilar got like attacked. If it sucked for Axilar if Osmosis got attacked, we should be both providing shared security to each other, basically, right?

• 28:42Speaker 03

  Osmo holders should be putting up economic stake backing Axilar validators. While Axilar stakers should be putting up economic stake backing Osmosis validators. So basically, by these two systems doing mass security with each other, they actually have the economic value of both of the market caps combined, securing each chain. And you can imagine that this scales with more and more chains, you know? We'll have a network of five chains, 10 chains. And the sum value of all of the app chains is going to be, you know, it'll provide greater equal security to like these L1 systems today.

• 29:21Ryan Sean Adams?

  Can we talk about the trade-off here, which is a trade-off I think Cosmos has made from the very early days? And Zaki just alluded to it, and Sunny, I think you also alluded to it in your answer, which is sacrificing monetary premium. Essentially saying that the token at the bottom of a Layer 1 chain does not need to, and perhaps should be designed not to accrue monetary premium. So coming from maybe kind of the Bitcoin space and also now the Ethereum space, obviously for Bitcoin monetary premium is the thing. That is the app of Bitcoin, right? And Ethereum, I think the community has most recently, more recently,

• 30:05Ryan Sean Adams?

  adopted monetary premium as part of its security defense force. And when we've had Justin Drake and others on the podcast, it's kind of like maybe less the fat protocol thesis and more kind of the fat money thesis, which is the idea that if you can create monetary premium in your base layer asset, you essentially get like free security. It's like memetic security for your entire network, for the entire tree trunk and all of the chains that are built on top. And so why not, number one? And then also, secondly, How can other layer ones compete against essentially free security against a chain and

• 30:48Ryan Sean Adams?

  an ecosystem with monetary premium? And this is something I think Adams has, you know, Cosmos and Adams being the token of the Cosmos hub at least, which is just one hub in the mesh network, of course, is not the thing. The Cosmos universe is much larger than just one hub. But in the Cosmos hub design, it's been kind of sacrificed. The idea of Adams is not to accrue monetary premium, but it seems like you're giving that up. What about this trade off? Sunny, what do you think?

• 31:15Speaker 03

  So, so about the, you know, getting the free economic security, I actually think that the mesh security is actually a non-rent extractive way of getting free economic security. When you're building on top of an L1 that has this monetary premium, there is actually some, you know, rent that's being extracted, whether it's like, you know, being forced to pay transaction fees in that token, or giving the MEV value to that, to that base layer, or while with the app chain system, you don't, and you use economic relationships to, you know, naturally forming economic relationships to provide that security basis. Now, to your other, to the question about like, so this might anger some of your listeners,

• 31:59Speaker 03

  but, you know, I remember I had a tweet a little while ago, saying that like, hot take, the Cosmos ecosystem is a bunch of undercover Bitcoin maxies. And I know you replied to that, like, yes, I realized this two years ago. And for me, I actually started building, working on Cosmos, because I wanted to build the app layer for Bitcoin. I saw, you know, I was in, I was working on Ethereum stuff for a while. I saw, you know, I was at consensus for a little bit. And to me, the, I don't know, the monolithic world didn't make, model didn't make sense. And I was like, okay, wait a second. Bitcoin is an app chain. Maybe we just need to kind of build more app chains and have everything, you know, we can build the, the app layer for Bitcoin. Bitcoin will just remain this simple chain. And its only

• 32:44Speaker 03

  purpose is to, you know, control the issuance of the Bitcoin system. And then Bitcoin will flow off of the Bitcoin, BTC will flow off of the Bitcoin chain and be, be the main money of the entire Cosmos network that we're building. You know, I guess I'm a little bit less of a Bitcoin max, monetary maxi as I used to be, but I, you know, I'm still, you know, I, I would definitely put myself more in that.

• 33:05Ryan Sean Adams?

  You dabble.

• 33:05Speaker 03

  Yeah, I dabble.

• 33:08Speaker 03

  But here's, there's actually a new project that like kind of um came out of hiding a little bit at Cosmaverse, which I'm really excited about. It's called Babylon. It's actually a way of using Bitcoins like monetary premium security layer to provide security to all the Cosmos chains and and any proof of state chain. So what it is, is it's a way of checkpointing proof of stake block headers into Bitcoins proof of work system. And you, you know, augmenting proof of stake security with the proof of work security of Bitcoin. And, you know, you kind of actually get a lot of cool benefits with this. You get like, you know, proof of stake, really secure in short timeframes, fast finality, all that, not very secure in long timeframes with whole long range attacks and all this kind of stuff.

• 33:51Speaker 03

  Proof of work, not very secure in the short timeframes, really secure in long timeframes. And if you actually overlay these systems together, you actually get a little bit of the best of both worlds. And so, uh, I don't know, I think Babylon is actually in a little way like bringing back that idea of like using the base monetary premium chain and having it provide security to all of these chains as well. But in this sort of like mesh network paradigm, you know, it's not, it's an opt-in system. It's chains that want to use Babylon can. It's not a like a hard requirement.

• 34:21Ryan Sean Adams?

  Before we get to Zaki with the same question, just uh one other follow up for you, Sunny. So isn't this the problem though, when we take something like Bitcoin and we port this to Cosmos? Is we lose the root economic security of Bitcoin. Now Bitcoin becomes like a lesser secure Bitcoin, the native Bitcoin on the Bitcoin blockchain. So native Bitcoin on the Bitcoin blockchain, of course, is secured by all of the miners, right? It's it's got Bitcoin level sovereign resistant uh security guarantees. Now, when we move Bitcoin to Cosmos, now we have to trust whatever app chain set of validators for our our security of that Bitcoin asset. It becomes a less secure asset when it's ported in that way,

• 35:03Ryan Sean Adams?

  because we're not sharing the security. Isn't this a a challenge that you see?

• 35:08Speaker 03

  Yeah, so you know, uh, getting secure bridges to Bitcoin is definitely an important focus for, you know, it's not, it's not, you know, something that we're definitely want to help promote more of, right? Like, we are, you know, we've been trying to help Jeremy Rubin with like getting some of the opCTV stuff and like, you know, more secure covenants on Bitcoin, which will allow for more secure bridges effectively. I'm a big fan of the, the, the drive chains model. Drive chains is effectively like how, how you would do IBC for Bitcoin. Um, so, you know, I think, uh, what I've, what I've learned is that like pushing on Bitcoin development too hard, like if you, the more you

• 35:49Speaker 03

  push at it, the more it's like kind of, uh, pushes back at you. And so, you know, I think that we're, we're, we're building for the long term here. And I think that, and I think the Bitcoin core developers have like a 10 year, 50 year, 20 year mindset, you know, and I, I, but I think the, I think the core primitives that will make Bitcoin be able to securely have the same trust assumptions as IBC will exist within, you know, a few years.

• 36:14Ryan Sean Adams?

  Zaki, what's your take on this whole monetary premium thing? Do you think it's much ado about nothing? Do you think monetary premium actually doesn't matter as much as maybe bankless and kind of Ethereum and Bitcoin community think it does?

• 36:25Speaker 03

  So what I would say is, I would, I think too many teams who build L1s. So like, again, so one thing that I think is again, is sort of important to remember about Cosmos is Cosmos is a 2014 project, basically. Like, we started, Jay, like Jay started it. I started hanging out with Jay. I've been working, we've been talking, we've been working on it and talking about and thinking about Cosmos back since then. It's gone through many names, but basically the core thesis isn't the same. Uh, we are very long-term builders. Uh, we, we were building the stuff before there was any money in it. We'll be building it, you know, if the money goes away, like we just, it, it, it like, it, it's an idea that seems so correct that it just has to be built.

• 37:11Speaker 00

  And the so in that spirit of building for the very long term, I really don't believe in building something that's so fragile that if you're, if you like sort of lose the meme, the whole thing collapses. Right? Whereas like, you know, the problem with and like, hon- honesty, I admire Ethereum's current monetary premium. I think, you know, I think Vitalik has done, if Vitalik, Justin, Danny have done an extraordinary job. They don't really always listen to me, but you know.

• 37:43Speaker 03

  We saw that with Terra a little bit, right? They lost the meme and the entire system collapsed.

• 37:48Speaker 00

  Exactly. Right? So how do you build systems? So start by building a system that is secure in the absence of a monetary premium. If you happen to also get a monetary premium, great. You get like this additional security, additional value you could do. You could, you could do things differently with. Um, but if you don't, but if you don't happen to have that and you still built a sound system, then you know, it'll keep going. Uh, and you know, whereas like, you know, you, you, we've seen the flip, the other side of it, which was also built on our tech, which is like, what do you, what does it look like when you build a completely unsound system? The minute you lose the meme, everything dies, uh, which was, which was Luna.

• 38:28Ryan Sean Adams?

  Let's earmark this question for later, but I, I, since we're on the topic of monetary premium, we'll, we'll come back to Adam 2.0 and the new economics that were introduced. But just really quick, Zachy, so we can earmark this for, for later in the, in the episode. Um, is Adam 2.0 increasing the potential for monetary premium of atoms? In your mind, does it make it a better mind?

• 38:51Speaker 00

  Yeah, it absolutely is. It's part of the vision.

• 38:54Ryan Sean Adams?

  That's part of the design.

• 38:56Speaker 00

  It is part of the vision to increase the possibility, increase the probability that Adam may have a monetary premium. Um, Ethan Buckman is one of the.

• 39:06Ryan Sean Adams?

  That is, that is cool. That is cool. That, that makes me as a, as a monetary premium maximalist, which I probably am. And in addition to a decentralization maximalist, um, it's cool to see the Cosmos community doing that.

• 39:19Speaker 00

  Can I give a little example about the mass security and other like justification of it?

• 39:23Speaker 03

  Gold is probably the asset in the world, like the one bearer asset in the world that has the most monetary premium right now. It has a market cap of about 11 trillion dollars. The top 10 companies by market cap in the world have a higher market cap than gold combined. And so if you go the, and that's the app chain model, right? It's like, oh, value comes from real, actual like revenue streams and like same way that company, you know, market caps come from. And so if the top 10 companies in the world have a greater market cap than gold, why can't the top 10 app chains have a greater market cap and security system than a monetary premium based?

• 40:00Ryan Sean Adams?

  So your point there, Sunny, is just, it's about like total economic security and that economic security does not need to come from monetary premium. It can come from a productive asset that is adding value. So like Facebook stock, for example. And like, if you have the top 10 companies, then you get a market cap exceeding gold. It's interesting.

• 40:20Speaker 03

  Yep.

• 40:21David Hoffman?

  So in this mesh network model of security, what's stopping one chain from just being way more useful and central than the others? And might that chain also beget some network effects and some liquidity premiums? And so while it all starts off as like a pretty diffuse mycelial network that's very horizontal, one chain, call it Osmosis, as like the liquidity center of Cosmos. What's stopping Osmosis from kind of just like positioning itself in the very center of everything? Because everything has to hook into Osmosis for liquidity. And then while the Cosmos idea, the Cosmos ecosystem never actually created like a beacon

• 41:05David Hoffman?

  chain, right? An actual this is the center. What's stopping something like Osmosis from basically becoming that anyways?

• 41:13Ryan Sean Adams?

  And what, in your answer, Sunny, could you just define what Osmosis is for people who are not familiar with the Cosmos ecosystem?

• 41:20Speaker 03

  Yeah, sure. So Osmosis is a, it's a DEX app chain, right? So it is a, you know, currently it's an AMM based system, but you know, we're adding more concentrated liquidity style stuff. And you know, our goal was to build the best DEX possible. And you know, we looked at like other DEXs on other ecosystems, whether it's Uniswap or Serum. Everything's always like constrained with the limitations of the platform it's built on. And we had a lot of ideas about how UX should work, how like new functionality, especially around like privacy and like new things that you, we just were so constrained by building on like the, like the, you know, we've actually, we actually thought about like building it on an EVM.

• 42:05Speaker 03

  And like, we're like, this doesn't actually work. The things we're trying to do won't work on here. And so, you know, by having our own chain that we can go, you know, especially if you want to do a lot of stuff at the privacy layer, right? You know, we need to go be able to change how the cryptography in the codebase works. While we also have to go change how the wallets work and like, you know, you have to have this like full stack control. And that's sort of what we did. And Osmosis was, you know, so this IBC thing, this interblockchain communication protocol that allows Cosmos chains to talk to each other, it, it, it existed for a little while. But then Osmosis sort of came along and like, it was like the first killer app of Cosmos, right? And there will be, there are already more, I think, killer apps coming.

• 42:48Speaker 03

  And but right now it is sort of where the center of user activity and liquidity has aggregated.

• 42:55Ryan Sean Adams?

  You'd say it's the first, but would you exclude Terra Luna just because it blew up? Because that was looking like a killer app a year ago.

• 43:02Speaker 03

  So Terra Luna was a pretty killer app. They, they took a little bit longer to activate IBC. So they activated, you know, they had, you know, Terra was, had quite a bit of traction, but they were using the Cosmos SDK stack. And then they acted, I activate, I mean, I've talked to them about it, you know, they, they're like, oh, there's no benefit of connecting to the Cosmos ecosystem. You know, where they're on the app. And then Osmosis came along and they're like, oh, okay, there's something worth connecting to, which is why they activated IBC. So. Back to your question about like the, you know, the how. What we're building here is highly organic systems, right? And that's a whole premise of Cosmos is like, you know, you let organic systems arise and you let like,

• 43:46Speaker 03

  you know, the natural network effects happen and, you know, natural connections will happen. And in any organic system, Hayekian system, you have power laws, right? There are things that are, it is fundamental to the nature of how Hayekian systems work that there will be power laws. And, you know, obviously, as an, as an Osmosis developer, I intend Osmosis to be at a certain end of the spectrum on those power laws. But, you know, I, I think our goal is not to be, you know, we're not trying to build a hub and spoke system, right? I think that would defeat the entire point of what we're trying to do with Cosmos. And we are, you know, that's why Osmosis is contributing heavily to like things like mesh security and like making sure that,

• 44:27Speaker 03

  you know, we, we, we, a lot of people had asked us like, hey, why aren't you doing hot, hot, like routing through Osmosis, right? You, you know, all this, you have all this asset flowing through Osmosis. If someone wanted to send a token from, you know, Regen chain to secret network chain, for example, you know, why aren't we actually? We had, we had the opportunity to allow it to have all go flow through Osmosis. But like, that's just not the vision for how Cosmos works. And we like specifically said, no, no, no, this like whole system is bad. We, everything should be doing point to point routing. All chains are the router, the hub for their own native assets. And so I think that's also kind of why we wanted to build this first app chain as well was so that, you know,

• 45:11Speaker 03

  I, our, our team, you know, me and Dave and other folks, we had spent three years building the core stack of, you know, building SDK and IBC. And at some point, we wanted to go build an application. And by building the application, we can kind of help set how, you know, be the good actor, be the first good, be the good actor that sets the cultural norms for how app change should be built.

• 45:32David Hoffman?

  So in that answer, is it, is the answer, yes, a chain could become the liquidity focal point of the entire Cosmos ecosystem, but we will also build surface area and routes around that liquidity center that doesn't like formally instantiate it as a winner, even though it might be winning, it is not the winner and will never be like locked in there. Is that a summary of your answer?

• 45:58Ryan Sean Adams?

  David, doesn't it just feel like Uniswap basically on Ethereum?

• 46:01David Hoffman?

  Yes.

• 46:02Speaker 03

  Yeah.

• 46:02David Hoffman?

  Yeah.

• 46:03Speaker 03

  You know, Uniswap has quite a bit of competition. They still make up over 50% of volumes on Ethereum, but like, you know, it's still a free and fair market that like, you know, if Uniswap goes down, this Ethereum doesn't die, right? There's so many alternatives that things can flow through as well.

• 46:18David Hoffman?

  I think the difference though, is that Uniswap is largely a platform for Ether liquidity more than it is Uni liquidity. And when there is an absence of a monetary premium asset that's like instantiated or formalized in the Cosmos ecosystem, perhaps the Osmosis token becomes that asset if it is providing its own liquidity to its own asset. And the Osmosis token is the most liquid asset inside of Cosmos and starts to become the money of Cosmos. I think that's a difference there that's worth, uh, worth poking at a little bit because then that does start to like bake in, bake in, uh, the Osmosis token more formally into the broader Cosmos ecosystem than Uniswap does for the Uni token. Cause then the Osmosis token starts to fill the role that Ether plays in the Ethereum ecosystem. What would you think about this?

• 47:04Speaker 03

  Yeah. So we did do a little bit of that where like Osmo is the base liquidity pair of, uh, most of these pools, but I actually don't think that's going to be a lasting thing because as we move towards more concentrated liquidity and order book style systems, I think the UX kind of demands for stable coins to be the, uh, you know, the quote asset for most of these pairs. Uh, you know, people, if they're putting concentrated liquidity positions, they want to say, hey, I want to put it between 90 cents and a dollar 10, right? Not like denominated things in Osmo. So, um, you know, I, I, I think with Osmosis, you know, another thing though is like, we, we're, we're not just the Cosmos deck. It

• 47:45Speaker 03

  depends on what you call Cosmos. Like, you know, we are, uh, funny enough, you know, we're actually the second biggest DEX for Dot. Uh,

• 47:54Speaker 00

  Like, yeah, and it's like, so we have a lot of doc coming over. We have, you know, ETH and WBTC are the third and fourth most liquid assets on Osmosis. Uh, we have, um, and you know, we are working on building up connections to more ecosystems, you know, our, one of our goals is we want to be the place that if you have ETH on Ethereum and you want AVAX on Avalanche, you can, the Osmosis should be the best place to route it, both from a UX perspective and liquidity perspective.

• 48:24Ryan Sean Adams?

  I don't know if this is true with respect to monetary premiums, but I have always seen the Cosmos ecosystem, they sort of import different monies into their kind of trade route network rather than build up their own monies. Maybe, maybe thing, things are changing with, with Adams and kind of the new design and that's, that's being more conducive to monetary premium, but importing Bitcoin, for example, tokenized version of Bitcoin, importing ETH, now more recently importing USDC, which has got to be a big boom to the Cosmos community. Zaki, do you have any thoughts on this? And just in general, how big do you think is the move for Circle and USDC to be now supported on Cosmos? Are you kind of a staple coin

• 49:06Ryan Sean Adams?

  maximalist? And do you have any issues with this particular staple coin design that it's a bit more centralized, for instance?

• 49:13Speaker 00

  So, um, inclusion. So, okay, I, I wanted to make a couple of points that like just kind of pop the stack a little bit that like all descend really nicely down this. So one thing that I think is very different about, another thing that's a real difference between Cosmos and Ethereum, um, is that in Cosmos, most of the core devs also work on apps. Um, versus in Ethereum, there's like, like you go to like, uh, like, um, like, um, like, uh, Dev Connect in Amsterdam, and you see this like massive disconnect between like the Ethereum core dev community and the Ethereum app community. In Cosmos, every single core dev,

• 49:55Speaker 00

  like most of the like well-known core devs inside of Cosmos and the people who sort of guide and steward the other core devs who don't want to think about app lyric. Almost every one of them has an app. So like I have Simile Finance. I also work on Agoric and Agoric Stablecoin called IST. I work on the USDC chain or the chain, the generalized asset issuance chain that USDC is coming on to. You know, and I helped close the, close the deal and the announcement. And so there's like this whole, uh, uh, which like gives this very different feel, uh, feeling to the whole ecosystem. And also kind of helps solidify this whole, oh, it's going to be a mesh instead of it's going to be like centralized around one thing.

• 50:40Speaker 00

  Because we all have our own apps. We all have our own, you know, and like economic incentives to like, make sure that like different coins in the ecosystem all succeed and thrive. And so we're all, we're all constantly constructing different routes and trade routes. And it does sort of preserve this sort of decentralized nature of the ecosystem. So then like go all the way up onto the stablecoin thing. So, you know, in, in many ways, the, uh, you know, the, I, I would say like the, the way the USDC announcement was structured, I think, was, oh, we're coming to a lot of chains. So it just like, sounds like, okay, we're coming to a lot of chains.

• 51:18Speaker 00

  But like, honestly, what I would say is the biggest thing that I have seen from the sort of discussion and conversation with USDC around Cosmos, about coming to Cosmos, about coming to, so like one of the differences between Cosmos, right? Is like on all the other chains except for, uh, uh, Polkadot that they're launching on. The chain, like the apps where the chain is going to be used and the chain where they're issuing are the same. On the Cosmos ecosystem, they are issuing on an interchain secured chain. But the understanding that the majority of the usage is going to be on DYDX, Osmosis, Say Protocol.

• 51:58Speaker 00

  Like all of these, you know, Agoric, all of these things. So what I would say is that like, one of the things that's been exciting to me has been seeing USDC.

• 52:10Speaker 00

  From go from sort of ignoring the multi-chain world and sort of just like, okay, we're like, we're gonna maybe, we're gonna like, we were, we're on the like, L, we're like, kind, they were kind of affiliated with a fat protocol thesis where they're like, we'll go to the fattest protocols, we'll issue USDC there, to, okay, we get it, it's all multi-chain. We gotta like make USDC much more natively multi-chain. Um, which is honestly a challenge for a lot of the bridging protocols, like, you know, when, when Sunny says, you know, Axolar is, is, is the, is the biggest bridge into Osmosis, it's almost all stablecoin volume and, you know, we're bringing USDC natively to Cosmos.

• 52:49Speaker 00

  Um, the, the, like, most wrapped bridge tokens in general are primarily stablecoins going from where they aren't to where they are. And we're much more entering a universe of stablecoin ubiquity, like, you know, essentially, now, you know, if you're building a new L1 and you just build IBC support, you're gonna get USDC from Cosmos. Um, uh, from the, from the, from the, from the R-chain, like seamlessly and permissionlessly, which you could never do before. So, these things are like, I, I think the Circle announcement was kind of underplayed as exactly how as big deal it is. Because like, literally what they were just saying, like, the literal logical implementation of,

• 53:27Speaker 00

  of USDC coming on to, uh, Cosmos, is now USDC is available to any L1 builder who implements the Interblockchain Communication Protocol. And they get USDC for free.

• 53:40Ryan Sean Adams?

  I think that is a big deal and I, I like the idea of USDC on Cosmos more than say something like some kind of a Bitcoin. Because, uh, U-USDC itself is, is already a centralized, it's an IOU for a dollar in, in a bank account owned by Coinbase, right? It's not supposed to provide sovereign-grade security, it's not a crypto native money at all. And so, putting that on Cosmos just seems to make sense, you're not really sacrificing, uh, any of the, um, any, any of the security or any of, of the kind of the sovereignty of the money, because it's just already a dollar, it's a digital dollar. But, okay, so, um, I'm gonna lay out another question, I guess I have for you guys, and this is again, maybe from- I'm a dumb Ethereum Kool-Aid drinker point of view.

• 54:24Ryan Sean Adams?

  And you guys tell me where I'm wrong. Yeah, okay, so Layer 2s versus Cosmos. Let's talk about that. So, yes, the future is multi-chain. What people don't necessarily understand is that there are kind of two multi-chain visions, I think, at play, right? Not to say that both won't coexist. I'm sure they absolutely will coexist. But one is kind of a Cosmos multi-chain vision. And the other is maybe an Ethereum multi-chain vision. And let me lay out the Ethereum kind of multi-chain vision, because I understand that a little bit more. But the basic idea is all of the chains settle back and use the security of Ethereum, right?

• 55:07Ryan Sean Adams?

  And so, yes, the Ethereum ecosystem, or universe, if you will, will have app chains. And yes, app chains are a force. Cosmos is absolutely right in its thesis about this, that app chains are going to be a big deal. I think you guys have led the way. And probably the Ethereum community is like, oh, yeah, we get it now. Like, we understand. App chain's a big deal, yes. But the way that the Ethereum community is doing app chains is basically like as part of, maybe call it a Layer 3, as part of kind of a roll-up. So you've got Arbitrum and their AnyTrust strategy. We just had the folks from ZK Sync on the podcast last week, or a couple of weeks ago, at the time of people will listen to this.

• 55:52Ryan Sean Adams?

  And that episode was about essentially spinning up app chains inside of what they called a Layer 2, which just means basically settled down to Ethereum at the root, at the end of the day. So secured by Ethereum. And the benefit of this, you guys are going to emphasize the cost, but let me tell you what the benefit is of this, I see, is you get Ethereum's level of security, or something close to it, with maybe a few minor trade-offs, without having to pay for it, right? So if you spin up your own sovereign chain, there is a military, there is a security force, the police and the military you have to fund. And those are called the validators of the system. They secure the chain for you. If you're on Ethereum, you settle down to Ethereum.

• 56:36Ryan Sean Adams?

  You benefit from Ethereum's economic security. You don't have to pay your own military and police force. And so that has both economic advantages. It seems like you get to preserve much of the sovereignty, though you guys maybe will disagree and say, well, it's not completely your own, your own kind of sovereignty in that app chain. But you get those benefits and then you're kind of tapped into the Ethereum network and the Ethereum community. Cross-chain bridging becomes much more secure. You get a lot of benefits from that path. So contrast that, if you will, with the Cosmos app chain model. And yeah, tell me where the Ethereum strategy breaks down.

• 57:15Speaker 03

  Well, we have a name for that system. It's called empires and colonies.

• 57:20Speaker 03

  And we're building for sovereign systems. I don't know, Zach, you want to start?

• 57:25Speaker 00

  Yeah, okay. So that was the very memeable version of the put down. I'll do the a little bit more. So, okay. So first point is, I don't think like, like, I think that the, you know, part of the goal of, you know, part of like the dialogue between Ethereum and Cosmos, which I think most people in Ethereum don't really realize this, but this dialogue has been going on since like 2014. One of the co-founders of Cosmos was like an early Geth contributor and Geth, Geth person. Like we have been, these have been existence, systems that inform each other.

• 58:06Speaker 00

  And honestly, we've been trying to get convinced Ethereum to like move towards something like what the current vision is for a very long time. We've been like, okay, guys, like, yes, like, we get it. But like, you've got to understand the app chain thing. Like, that has to like be part of the vision. And like, it's taken a long time because like, they went down this like sharding, off-ramp. And I was like, what are you doing? Don't do that off-ramp.

• 58:32Ryan Sean Adams?

  And the plasma off-ramp and like, there's a couple off-ramps.

• 58:35Speaker 00

  Yeah, like plasma, sharding. It took them so long to like, be like, single slot finality. App chains. Okay, cool.

• 58:44Ryan Sean Adams?

  So they kind of capitulated a little bit and they came around to the Cosmos vision.

• 58:48Speaker 00

  Yeah, I, you know, I was, I hung out with Vitalik for like a week earlier this year. I'm like, I finally convinced you. It's taken seven years, but I finally convinced you.

• 59:01Speaker 00

  So I I was so that you know, there's a there is a friendliness always to the Ethereum community. We are we are we have always viewed each other as brothers. And in many ways, like I think the mission of the Cosmos, if that world that like you're describing of the Ethereum world, the idea of Cosmos will have succeeded. And that that's why we're all here. So that's first of all, we're honest. Now, like, I'll just go to like, what is the specific sort of technical reason is in my mind, a blockchain is three things. It's an execution environment. It's a data availability system, and it's a system of

• 59:41Speaker 00

  bridges. Ethereum is trying to say, hey, basically, we want to build one of all of this. Like, there's like, one canonical place you bridge to, where you have where you post your fraud proofs, where you post your uh uh uh your yours uh uh zero knowledge proofs. We'll provide one data availability layer called dank sharding. And then you can investigate all the execution environments that you want. The Cosmos vision is, bridge wherever you want. We have IBC. You can go any you can bridge anywhere. IBC can can can enable you to bridge anywhere. Post your your zero knowledge proofs and your your your fraud

• 1:00:26Speaker 00

  proofs and everything wherever you want. You know, Celestia is kind of part of the Cosmos family. It is a data availability focused app chain, enabling like a a a roll up type ecosystem. And you can post your stuff there. And then we've given you a free toolkit for building execution environments. And so the differences between the Ethereum environment ecosystem right now is, one, for the most part, the execution environment toolkits are not free. Which is which is, I think, a big reason of, you know, why D Y D X, for instance, came to Cosmos, and why other chains have come to Cosmos is, there is an advantage to being like, hey, like, the execution environment is not the product of some company that

• 1:01:11Speaker 00

  Like raised like bill, you know, hundred, you know, multi-billion dollar valuations.

• 1:01:14Ryan Sean Adams?

  Are you talking Zaki with that? Is that, is that like, um, Tendermint? Is that kind of the Cosmos SDK?

• 1:01:19Speaker 00

  Yeah, Tendermint, the Cosmos SDK.

• 1:01:20Ryan Sean Adams?

  It's just free, it's open source, out of the box.

• 1:01:22Speaker 00

  Our open source Apache two licensed public goods.

• 1:01:25Ryan Sean Adams?

  Got it.

• 1:01:25Speaker 00

  You know, collaborated on by many different people, um, where there's many different experts all over the ecosystem. Who sit in chats with each other and just like work on it and debug it every day. Much of it is funded by the Adam holders, but it's like, again, we use the Adam fundraiser, we use the speculation, speculative energy around Adam. To like build this public good for everyone.

• 1:01:51Speaker 00

  So that was, that was, that was, so that's, that I think is the big.

• 1:01:54Speaker 03

  I also just think it's actually just the best framework for this. Like, I mean, you know, if you. Compound, if you, you know, Robert Lesnar tweeted a couple of weeks ago, a couple of months ago, he's like, you know, Compound Chain tried to build an app chain on. You, but I think they just chose the wrong stack. They chose substrate and spent a year banging their head against the walls and gave up. And, and like Robert Lesnar said, like, hey, I actually think if we chose the Cosmos SDK as the stack to do this on, I think this could have worked and, um, you know. Part of from a builder perspective, I think there's actually just like, one of the big things is we could just build faster with the Cosmos SDK than we could with rollups, right? Like build, so in rollups today, you kind of have like two model, two real frameworks right now.

• 1:02:39Speaker 03

  It's either everyone's building these like EVM compatible systems, but like I mentioned, you know, the stuff we're trying to do, it doesn't work on the EVM. We, we need a, we need a custom, uh, framework for that. Building optimistic rollups or ZK rollups for really custom state machines is actually really hard. Probably the closest, you know, the closest thing right now is Cairo from, from the Starkware team. And, you know, it's really impressive what they've been able to do, but I mean, I'll say that. Writing a deck of the complexity of what we're trying, of osmosis, trying to write this in this new programming thing called Cairo. That's like very cutting edge, you know, it's, it's like trying to write in like, you know.

• 1:03:21Speaker 03

  Not even C, it's like a proto C, like it's like versus, you know, the stuff that we can do and like go and rust and just like build faster. And I think build the applications and build the UX framework. So I guess like, you know, maybe one, one thing is how, how to compare a lot of this stuff is the Ethereum ecosystem and Cosmos. Yes, maybe they're both moving towards the same place right now, the same end goal. The Ethereum ecosystem decided to spend a lot of time focusing on, you know, the things like, like the fraud proofs and validity proofs, the data availability stuff. While I think the Cosmos ecosystem has focused much more at a higher level layer of the stack at the, you know, the state machine stuff.

• 1:04:02Speaker 03

  I think the Cosmos VM is probably the best designed VM in all of crypto because of how it does interchange composability. I that the, the cross chain composability that we have in Cosmos is way more advanced than anything else, you know, other ecosystems. Yeah, you can bridge tokens, right? In Cosmos, we can have like DAOs on one chain, like do transactions on another chain like that's like. So, and I think maybe part of that comes from the, you know, like Zach, you mentioned that all the core devs of Cosmos are app developers as well. And so that's kind of informs the decision and priorities that, that, that, that we do. And so that's sort of one of the trade offs. And no, we will eventually have fraud proofs and validity proofs and all that stuff for Cosmos SDK chains as well.

• 1:04:47Speaker 03

  But we're just like, we're going to build a better UX and like app features first.

• 1:04:51Ryan Sean Adams?

  I think this is very much what the, what the difference is, is Cosmos is starting like app down and, and Ethereum is almost starting from kind of like a base protocol up a bit more. And so I, yeah, I think a big part of your answer was, hey, the Cosmos SDK is just badass. If you're trying to build a chain and like, there's nothing comparable in the Ethereum community yet. I know we've, we've heard the optimism team talk about, um, you know, a bedrock, which is kind of their version of, of creating kind of a, uh, almost like a WordPress for chains. We just kind of, you know, stamp them out and these would be rollups, but. Layer two out of the box. Yeah, layer two out of the box, but it's not, it's certainly not there yet. What's interesting, I think.

• 1:05:30Speaker 03

  Hot take is that, you know. Rollups like to talk about how much how like secure they are and stuff compared to like, but if you go to l2beat.com, you can see the actual security properties.

• 1:05:41Ryan Sean Adams?

  Oh, we know it. We know it.

• 1:05:42Speaker 03

  Yeah. I would say the IBC system right now is actually more secure than any of the, most of the rollups in practice today.

• 1:05:48Ryan Sean Adams?

  Well, we also had Vitalik on who was like wondering if we'll ever get to a place in optimistic rollups, at least where fraud proofs actually work because we're not, we're not there yet. Right. Although I will say ZK EVMs are looking pretty, pretty good from a tech perspective and from, from, from that side of things. But yeah, it's, it's very interesting. I guess one comment I want to make and then just a quick question is it, it does seem like because all of the Cosmos core developers are also app developers, app chain developers, that probably from put on your app chain hat, you guys are just willing to use whatever technology, app chain technology is best. Right. And right now that seems to be Cosmos for you, but like if there was a way to do kind

• 1:06:32Ryan Sean Adams?

  of Cosmos plus settling on Ethereum, you might decide to migrate your app there. It's just not been the best approach to date, right? The Cosmos community has, has provided the best app chain tools.

• 1:06:46David Hoffman?

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• 1:09:13Ryan Sean Adams?

  One question though, and this is a throwback maybe to 2018, 2017, 2018. And this was, I remember at the time, there were two big interoperability chains, because this was the narrative. It was Polkadot and it was Cosmos. And you just were talking about a failed attempt from the Compound team to actually build something in substrate, the Polkadot tech. Has Cosmos won that war, do you think? Cosmos versus Polkadot, is Cosmos ahead? And I'm asking for you, obviously you're probably going to say yes, because you're on Team Cosmos. But like, give me some objective reasons for why you think that's true.

• 1:09:51Speaker 00

  Yeah, okay, so.

• 1:09:54Speaker 00

  We could talk about a little bit about, I mean, we have many friends at Parity in the Polkadot community. IBC to Polkadot is also being built by a team called Composable Finance. Another exciting thing, just talking about all the ZK progress, is ZK IBC has gone from being like, maybe it's like five years away to like, maybe it's like a year away. There's like a lot of exciting teams that have kind of come in and started building the building blocks of ZK IBC, which would potentially allow for much more interoperability with Ethereum. So just like, kind of talk about all those things. Then like, like get to the heart of your question. Polkadot versus Cosmos, which model is winning?

• 1:10:39Speaker 00

  Dot market cap wise, dot is winning. But, okay, so like, you know, you heard in the same sentence, like basically the same presentation from Circle. USDC is launching on Polkadot, it's launching before it's launching on Cosmos. Absolutely true. Does Polkadot have an app that's going to mint a billion dollars of USDC on it? No. Right? We have DYDX. Like, when USDC goes live on Cosmos, the floor mint is a billion dollars, just to move the DYDX user base from Starkware

• 1:11:19Speaker 00

  to Cosmos. This is the, like, I mean, that's like, it's a very hard number, it's a very hard metric, but it's like, like, this is what happens when you bring the best apps to your ecosystem and you don't collect rent from your app developers. You build an ecosystem in which of collaboration in which they can thrive and we can thrive. You get the best apps. And then, as assets and stuff move to the ecosystem, you get these like exponentials of scale that like are not possible. You know.

• 1:11:51Ryan Sean Adams?

  Well.

• 1:11:51Speaker 00

  In another ecosystem.

• 1:11:52Ryan Sean Adams?

  What's interesting about that is it feels like Polkadot has maybe done the strategy where they've tried to split the difference between Ethereum and Cosmos. And because they've been in the middle, like the middle just hasn't held, right? Whereas like Ethereum is just like. Yeah, the middle doesn't hold. And so Ethereum is just like, hey, we're, um, we're an empire, I guess. I don't think particularly think they're an evil empire, but in, in, in empire nonetheless.

• 1:12:16Speaker 00

  Like they're not.

• 1:12:17Ryan Sean Adams?

  Vitalik's certainly not evil. No one would say that, but like.

• 1:12:19Speaker 00

  Vitalik's not evil.

• 1:12:20Ryan Sean Adams?

  There's some rent extraction. There's all sorts of things, right? I get that.

• 1:12:23Speaker 00

  But it's not nearly, it's as, I don't consider it nearly as adversely selective as, as Polkadot.

• 1:12:29Ryan Sean Adams?

  Sure.

• 1:12:29Speaker 00

  You are getting these enormous network effects from it.

• 1:12:32Ryan Sean Adams?

  Well, but you, so you have that and it's like, it's kind of like, uh, the United States, right? And all of the chains are sort of states within the United States. There's a federalist kind of like notion to it, but of, you know, Confederacy of States as well. And then you've got Cosmos on the other side, which is just like anarchy almost. It's not anarchy, but it's almost like, hey, any, any city state can spin up. We'll, we'll, we'll do a network if it's advantageous. We'll do Sparta and Athens. We'll make an alliance, but maybe we won't, maybe we'll go to war, but maybe we will. And like, it's like, it's very loose, but there's no rent collection paid to the kind of the Cosmos hub. Then you have Polkadot, which kind of tried to split the difference here, where they tried to have kind of the, uh, you know, the sovereignty of all of these chain experiments.

• 1:13:16Ryan Sean Adams?

  But then they asked the chains to pay rent economically back, back to dot holders, right? You have to rent out your, um, parachain in the Polkadot network, right? And it just seems like that model has not picked up from an economic perspective. And this is why very much right now in crypto, maybe this has always been the case. I've, I, I just see these two sides. There's Ethereum on one side and there's Cosmos on the other. And these are the two kind of parallel ideas that are playing out in crypto before us in 2022.

• 1:13:48David Hoffman?

  We've used this metaphor before. Ryan is the one that put this into my brain is that nature has made a crab like 10, 15, 20 different times throughout history and these crabs are unrelated to each other like on the evolutionary line. And that's just because the crab is a good strategy. And some of the lines I've been using on this like metaphor is that if you reroll the dice over and over and over again about how the crypto industry forms, you'll get Ethereum every single time. And it also, I think, goes to show with Ryan was just saying, you'll also get Cosmos. It is the central security model of Ethereum versus the app chain model of Cosmos. And that is like the whole thing.

• 1:14:31David Hoffman?

  Maybe Bitcoiners will be like, oh, and there's also the proof of work money strategy as well. Maybe that maybe that's also true. But my opinion is that- That's a type of app chain. Yeah, okay, sure. I said app chain, right. So it's one of these two flavors. Maybe, maybe it's a 50 50 split, maybe it's an 80 20 split, but it's definitely not 100 0. I definitely will take that into account. I want to talk about MEV. I want to go down the MEV rabbit hole a little bit, because I think that will also help illustrate the incentive for apps to be their own app chain. Sonny, can you talk about the MEV model of Ethereum? And like, we can use Uniswap as an example. Dan Elitzer just put out a fantastic article talking about

• 1:15:15David Hoffman?

  Uniswap and all of the money it makes as revenue versus the money it leaks to the ecosystem. And just like, real, just to speed run that article, a roughly one third of the economic energy that goes through Uniswap is captured by liquidity providers, the actual like service providers of Uniswap. About one third goes to gas payments to transact on Uniswap and one more third goes to MEV payments, front running, back running, like arbitrage opportunities. So there's this application on Ethereum called Uniswap. And of all the costs it takes users to use Uniswap, about one third of that cost goes to profits for liquidity providers. One third goes to gas payments, which goes to Ether holders.

• 1:15:58David Hoffman?

  And one third goes to MEV bots, which are MEV bots. And so the claim here is that there's a leaking a lot of value anytime you use Uniswap. So Sonny, can you talk about this in like the Cosmos perspective and how Cosmos and app chains solve some of these problems, some of these MEV problems and are a less leaky ship when it comes to value capture and value accrual for apps?

• 1:16:20Speaker 03

  Yeah, sure. Yeah, you know, Dan's, uh, proposal like, hey, we should build like a uni-chain. And I'm like, yeah, we did, it's called Osmosis.

• 1:16:34Speaker 03

  And Dan knows this, Nathan is a major investor in Osmosis. But so the, uh, yeah, so, uh, Anatoly from Solana had a, you know, had a tweet a couple of months ago at this point. But he basically said, you know, he also doesn't believe in the monetary premium thesis, right? And he actually said that like, I don't think there's, I don't know about the monetary premium stuff. It's a little bit too hand wavy for me, but the value of L1s is the MEV that they capture. And like you said, exactly that, like, you know, Uniswap is leaking that MEV value to the user, to, to, to the base layer of Ethereum, right? For Osmosis, you know, for, as a vertically integrated chain, there's sort of three sources of revenue, right?

• 1:17:19Speaker 03

  I could see it. We have our app let revenue, which is like, you know, it's a DEX, a trading fees and all that kind of stuff. There's your transaction fee revenue, but my take is actually that transaction fee revenue should never be a meaningful source of revenue. This is sort of my like concern with the whole EIP 1559, like sound ultrasound money like thesis is that like, in any world in which the transaction fee, okay, why is, what are you paying for with transaction fees? You're paying for like block space of a BFT compute system. And the point is that like, you know, I think that BFT, block space and BFT compute systems is going to be cheap in the long run

• 1:18:03Speaker 03

  because there's going to be so many chains and, you know, they're going to have a lot of, uh, you know, as more. Even in the Ethereum model, as more usage moves on to rollups, the demand for base layer block space will go down massively. And like, users are not gonna, in any world, if transaction fees are too low, it's not a meaningful source of revenue. If they're too high, users are not gonna use it. And Ethereum had this like, kind of like, you know, it had this like two year period, starting two years ago of like, oh, okay, you know, there was high enough, there was really high fees, but users were still using it because there was no real alternatives, right? But I don't know if that like is a, especially with rollups and app chains and all this new stuff coming out.

• 1:18:46Speaker 03

  I don't know if that, I don't know if users are gonna be willing to pay hundreds of dollars again for transactions. So, and then we kind of see this, you know, that's why a lot of stuff markets have moved to other chains. You know, NFTs are very popular on, you know, Solana, for example, right? Or games have moved off of like, completely moved off of Ethereum main chain altogether.

• 1:19:06Speaker 03

  So yeah, the third, the third source of revenue is the MEV capture, right? And so, Osmosis, we actually started with, uh, so before we were building a DEX, we actually were just like, building like MEV mitigation strategies. And so, we were working on something called threshold decryption, which is a way of encrypting the mempool entirely. And so that way, and only decrypting and executing after blocks have been finalized and committed. And so, you know, the motto that we follow at Osmosis is mitigate bad MEV, internalize good MEV. So how, where do we draw this distinction? Bad MEV is the type of MEV when you are doing actions based off of other people's transactions, right?

• 1:19:51Speaker 03

  Because the mempool is public, you can read other's transactions and you could, you know, sandwich them. You could, you know, generalize front run them, copy their strategies. You can do all this stuff, which is like, not cool. Fundamentally, that's a privacy breach. And like, it is a bug that the mempools are not encrypted right now. So that's why we focus on building threshold decryption so that the mempools are encrypted. But now there's still some types of MEV that remain, right? And I call these like, I don't know if good MEV is the right word, but they're not, it's not extractive MEV. You're not extracting it from anyone else. So examples would be arbing prices on Osmosis relative to centralized exchanges. Or even arbing prices within Osmosis pools, you know? There are circular routes through pools, arbing those together.

• 1:20:37Speaker 03

  Or there's, um, there's, you know, the Mars protocol is launching a lending platform on Osmosis quite soon. So, you know, triggering liquidations is another sort of, you know, good MEV. And all of these are good things, you know, you want your pools to be ARB. You want liquidations to be happening fast, but there is value in being the person to do that. Right. And so how do we internalize good MEV and bring that as protocol revenue? Uh, we're working very closely with a team called Skip, who's helping us, you know, instead of letting this stuff be like, you know, I call them like, I call, you know, then them be run by these off-chain validator cartels, right? You know, I would say like Flashbots not being part of the core protocol. It makes it so like, you know, it's sort of, it ends up having to be a little bit profit maximizing.

• 1:21:21Speaker 03

  When if the core, the beauty of app chains is because your chain hat understands the semantics of the application built on top of it. It can be opinionated about how it orders transactions or, and it can do things to actually promote social good. Right. It could be like, you know, we are going to make sure, uh, you know, you can't just rug liquidity. We're going to make sure all trades happen first before liquidity removals happen. And like, so that way, you know, liquidity can't get rubbed from under you. Or, or we can like detect sandwiches and like, you know, be like, oh, this is an invalid transaction order. We're going to move these transactions around. So it's not a sandwich anymore. Um, and like, you can do things like that, right? To help continue to mitigate the bad MEV.

• 1:22:04Speaker 03

  And then on the good MEV, you know, we can run automatic on-chain ARB bots where like, you know, we, we calculate our, our cycles. And we run an on-chain ARBber that happens at the end of every block and captures that ARB revenue. It, and gives it to Osmo stakers. Or we could, uh, ha- what, what we're going to do is have a top of the block auction, but in the protocol itself. So instead of relying on off-chain system, the in-protocol, you can bid to say, hey, I want to be the first transaction in the block. And that way you can be the one to do all the ARBs and, uh, you know, uh, liquidations and stuff. And doing it in protocol is important because then the protocol can decide how the revenue gets shared.

• 1:22:48Speaker 03

  Right. In, if you do it off-chain, you know, the revenue goes to like only the validators. And, you know, maybe we have to rely on them altruistic or like, you know, maybe we'll see a market where validators have to end up start sharing all their revenue with, with their delegators. Right. But in.

• 1:23:05Speaker 00

  If you do it in protocol, we can say, oh, we want some of this MEV revenue to go to all stakers. We want some of it to go to the community pool. We want to give some of it as a kickback to users. Like, we can like, choose what to do with that MEV revenue, which is, I think, a very important property.

• 1:23:22Ryan Sean Adams?

  Yeah, I think that's definitely the strength of the app chain model. You know, as we move kind of this conversation to, from comparisons to Ethereum and from the Cosmos thesis to the world of the new Adam 2.0 economics that were released. Having gone through that paper, there are a few things that stuck out to me, and I'm gonna try my attempt at summarizing. But you guys, go in there and let me know what the main thrust of these changes are. It seems like before, Adams, from an economic perspective, the token economics for an investor anyways, weren't really great, kind of sucked, at least did not accrue monetary premium. And Zaki, you're going thumbs down.

• 1:24:07Ryan Sean Adams?

  Can you talk about, like, why did it suck?

• 1:24:09David Hoffman?

  Thumbs down in agreement, right?

• 1:24:10Ryan Sean Adams?

  Yes, thumbs down.

• 1:24:11Speaker 00

  Thumbs down in agreement, right?

• 1:24:12Ryan Sean Adams?

  Yeah, I know.

• 1:24:13Speaker 00

  Right?

• 1:24:13Ryan Sean Adams?

  Why did they suck before?

• 1:24:15Speaker 00

  I mean, like, this was a big part of our presentation at Cosmosverse, my presentation specifically. You know, it was like, look,

• 1:24:24Speaker 00

  you can think of what Adam was foremost in the first iteration was a prototype of a proof of stake chain, right? We kind of, you know, we would say that, from our point of view, that our argument is that before the Cosmos Hub launched, there was no live proof of stake chain that had really taken proof of stake economically seriously and done it in like, a rigorous way from like, the computer science level all the way to the economics level. I believe that the Cosmos Hub was the first chain to do this.

• 1:24:58Speaker 00

  So, but it was a prototype of what does proof of stake look like? How can it be done in a rigorous way? Like, all of these things. But it was only a prototype. And like, the best way I would describe it is also, is we have an app chain thesis. What the hell is the app of the Cosmos Hub? It doesn't appear to have an app.

• 1:25:20Speaker 00

  So we were kind of the, you know, and so, you know, the, you know, both Ethan and I talked about this, and this has been a big theme of, you know, the last week of our lives and like the preceding like nine months of pulling all these ideas together. Have been about, you know, okay, we would like to go out and we would like to say, one, we want to make Adam a better ecosystem asset. But part of that, but inherent to that idea is we must create an app for the Cosmos hub. I don't know what you kind of take your, do other takeaways from the paper because I'm curious in real time getting like what you, what you took away from it. And then, but I could talk a little bit about, but yes, so like issuance is changing.

• 1:26:05Speaker 00

  We are moving towards, you know, not this exponential inflation. We think that helps define the ecosystem. We think it makes Adam closer to a monetary, a monetary asset, like all of those things, and we think those things are good.

• 1:26:19Ryan Sean Adams?

  Okay.

• 1:26:19Speaker 00

  It's like first leg of the story.

• 1:26:21Ryan Sean Adams?

  Let's camp on that because as a, as a monetary maximalist, you'll note that the first thing I noticed in this paper was, hey, the monetary policy has changed. How this is interesting. And I, you know, I, I almost wondered in the back of my mind if it's like, if the Ethereum community kind of capitulated and being like, ah, Cosmos, these app chain guys were right. They were right all along, right? We're going to do more app chains in Ethereum. I almost saw maybe some recognition from the Cosmos community that, huh, this, this ultrasound money thing, hmm, maybe we want our atom token to actually exhibit some characteristics of, of money and have a, a better issuance policy. That's kind of what I saw, but maybe that's my biased reading of the thing.

• 1:27:01Ryan Sean Adams?

  And so what I saw is previously, I think issuance for atom token holders, was that between like seven and 20% per year? That was the rate of issuance, new issuance in the market?

• 1:27:13Speaker 00

  It's adaptive to the amount that's staked. So we target a stake rate of 67%.

• 1:27:21Speaker 00

  Because of, you know, we want to keep the, make it very expensive to attack, to like, for there to be enough liquid atom to accumulate to actually attack the network.

• 1:27:31Ryan Sean Adams?

  Right.

• 1:27:32Speaker 00

  And you know, so you know, we and so basically, you know, what pulls atoms away from being there are like what's on centralized exchanges that centralized exchanges themselves are not staking. And then all of the atoms that are out there in LP pools, all of that stuff. You know, that pushes the staking rate down, the inflation rate goes up to compensate. So right, so like since Osmo, so we had dropped to about seven percent inflation.

• 1:28:03Ryan Sean Adams?

  Okay.

• 1:28:05Speaker 00

  New atom issuance. And then since kind of Osmosis launched and the IBC ecosystem, we've been averaging about nine-ish percent in this PID loop. But and that has translated into a staking APY for atoms of about, you know, nineteen, twenty percent.

• 1:28:19Ryan Sean Adams?

  Gotcha. And now, what are the changes? There seem to be almost two phases of these changes, like a transition phase and then almost a steady state. In the first phase, issuance actually increases, I believe, but then in the second phase, it kind of like tapers off and it's gonna decrease to like one percent. Could you explain that?

• 1:28:36Speaker 00

  Yeah, there's, there's a bunch of complicated moving pieces in the issuance thing. A big part of the framework around issuance, though, is that Cosmos is taking a very different approach to liquid staking than, let's say, Ethereum has. Where I would say Ethereum fought tooth and nail to make it as hard as possible for like liquid staking to emerge, and it emerged anyways because the economics are so compelling. The Cosmos ecosystem has been taking an approach of, hey, we want to make sure that there are just a large variety of liquid staking providers. And so that there is competition. And so you don't have a situation where a Lito-like entity becomes like super dominant.

• 1:29:18Speaker 00

  But we think on the whole, like liquid staking, staking derivative assets are actually really important to the security budget of the system. So, and the, the logic there is it allows people to stack their yield. So rather than saying atom holders, like, we're gonna try and like print so many atoms that we compensate you for the opportunity cost of everything else you could do with atom, we're saying, liquid stake your atom, take your liquid staked atom, go do all the other things that you could do in DeFi, go use the app ecosystem with your liquid staked atom, and have it still contribute to the security budget that Cosmos has. So that, that, so the first thesis is, so there's like.

• 1:30:00Speaker 00

  Probably about like six liquid staking protocols launching or in the midst of launching on top of in the Cosmos ecosystem right now. So there's like, there's a lot of activity around that. So we're sort of projecting in the future saying, hey, we think this over the next three years, we expect these protocols will succeed. My team at inclusion has been working, has been, has been working really like one of our big contributions of the inclusion team to the, to the paper has been that we spent the last like 18 months making changes to the like default Cosmos staking module to improve the UX of liquid staking.

• 1:30:38Speaker 00

  So all of that stuff. So that's happening. So staking yield starts to fall, starts to fall on like a yearly basis in this. Now, the issuance goes up, but that is issuance to the community treasury. It is, it is because you know, a lot of chains have had this idea of having like the on-chain DAO, being able to have funds and funds. We started the Cosmos hub out with a very small amount where there's only about half a percent of, of new issuance goes into the, and so like we have about, you know, $10 million, I think of token of value in our, in our community pool.

• 1:31:22Speaker 00

  Whereas, you know, some other L1s will have like a third of their market cap in, in the community pool to like fund new things. And one of the things that we're saying is in this new app vision, to execute on that app vision, you need working capital. Like we're gonna have to go and do business development. We're gonna have to onboard chains onto this interchain security thing. Like there's gonna be a lot of stuff that needs to be done that wasn't really conceived of in the original Cosmos hub. But like, you know, if you hold atoms, you're gonna be a voter on what those funds are being. So like the extent to which it's dilutive, I think is a little overplayed because, and then we're saying after this three-year period,

• 1:32:04Speaker 00

  there's not gonna be any more sick new funding going into the community pool. There's not into the on-chain treasury. There's, and then we're gonna drop the staking yield basically to about 1%.

• 1:32:16Ryan Sean Adams?

  That makes sense. Okay, so that's the economic change for Adams and lower staking yield is kind of like lower issuance is the eventual outcome that'll take some years to play out. And you also mentioned liquid staking, which I noticed in the paper, making that kind of a first-class citizen, I would say, in the Cosmos ecosystem and the way it's liquid staking is probably it's not a first-class citizen in Ethereum. It's kind of an app that a third party creates. And then I also noticed like you're posing the question, Zaki, of like, what is the app of the Cosmos hub itself? And is the app of the Cosmos hub not interchain security? Isn't it like, isn't that the thing that's

• 1:32:55Ryan Sean Adams?

  supposed to... So talk about this. And this, I think, is sort of the idea that you can call on Atom validators, Cosmos hub validators, to also secure your app chain if you want? Is this the case? Is this what interchain security means?

• 1:33:13Speaker 00

  Yeah, so I'll contrast. Why don't we talk about two terms? One is mesh security, the other was interchain security. Technical primitives are very similar, are basically almost identical between them. They're about, you know, translating staking information from and slashing information from one chain to another chain. So like, if you fault on one chain, you get slashed on another chain. Let's call interchain security, but like your the version in which you replicate the hub validator set. Okay, so when we started with this interchain security thing, I was like the biggest skeptic that we would find anyone who cared about it. I was like, anyone who's really serious about building an app

• 1:33:55Speaker 00

  will like want to be in their own sovereign chain. Why would anybody else want to do this? Like, and then we found, we found like an enormous amount of of customer demand for for interchain security that like, or like, we call them consumer chains. So chains that consume security from the hub. We found so much demand for it. And I'm like, what? Like, it was like a shock to me. But I've understood now in the in the past, like, what are the what are the things that interchain security is offering that people get that is like appealing to people?

• 1:34:33Speaker 00

  One category of thing is there are very high value users like USDC, for instance, who want to be able to like launch, be strongly affiliated with the developer community core, the exchanges, the custodians, the the the community around Atom, and like do not want to think about tokenomics. They just like don't want to like that's like just not something that they would like really at all want to do. And so that's like one really strong use case, which is like really powerful use cases that accrue value to the whole ecosystem and accrue value to the Cosmos Hub. But like, don't want to think about their own tokenomics at all.

• 1:35:16Speaker 00

  Other things are, hey, we're we are building something that's like actually very security sensitive, like liquid staking, where if like you have a major liquid staking provider and it gets taken over, it like cap there's like a cascading effect on the security of every other chain that is is is like running on top of their liquid staking protocol. So those chains have also wanted to affiliate more closely with the Cosmos Hub. And then there's the sense of, hey, I want to be able to build like and really target just like the network effects around Atom, the wide holder base, all of that stuff. These are three teen uh uh themes that we see popping up over and over again.

• 1:35:57Speaker 00

  And frankly, this has given this like, again, has finally given us a sense of what is the purpose of the Cosmos Hub, which is to enable these things to succeed.

• 1:36:06Ryan Sean Adams?

  That is cool. I I guess another thing I I noticed was um some something that you guys are doing with MEV on.

• 1:36:14Speaker 00

  Can I add one more thing about the hub?

• 1:36:15Ryan Sean Adams?

  Yeah, yeah, go ahead.

• 1:36:16Speaker 00

  How it relates in the mesh security vision. So um I taught a class on Switzerland in at UC Berkeley. It's my favorite country in the world.

• 1:36:26Ryan Sean Adams?

  A class on Switzerland, on the subject of Switzerland.

• 1:36:29Speaker 00

  Yeah, yeah, eight lectures, talked about history, politics, econ economics, like everything.

• 1:36:34Ryan Sean Adams?

  It's all of my website. Very neutral country.

• 1:36:37Speaker 00

  Yes. So, you know, how did Switzerland become? It's one of the richest countries in the world, right? Uh, and there's many things that that went into that, right? I think the role of its credible neutrality that it's played throughout history was very important. One thing that people maybe don't realize is that uh Switzerland.

• 1:36:57Speaker 03

  You know, it's it's neutral, but it actually had one of the best militaries in the world. And even till today, it actually is one of the best militaries in the world. But from like, you know, the period of like 1200 until like Napoleon, basically, they were like Europe's mercenaries. They were the best, most like respected military in all of Europe. But because they were neutral, they acted as mercenaries and went and like defended whoever would pay for them. And I see the role of the Cosmos hub to be this credibly neutral system that is a we will, you pay it for security and you get this like amazing economic security from it. So that's where I see the role.

• 1:37:36David Hoffman?

  Military for hire.

• 1:37:38Speaker 03

  Military for hire. It's like, you know, you don't want to have to come up with your own military. Well, you know, you can, you can, you can pay the Cosmos hub and you'll and that's the role I feel that it plays in this mesh security vision.

• 1:37:51David Hoffman?

  So the idea here is that app chains, maybe at Genesis, don't do this because they're at Genesis. But then their product market fit happens, their utility is proven out, their value increases. And then they can start to be like, hey, you know what? We can afford security. And so then they start to tap into this like credibly neutral army, uh, which thing can secure them.

• 1:38:14Speaker 03

  I wish it's almost the other direction.

• 1:38:17Speaker 00

  Well, I will, I'll just say too, one, one of the things that is like really cool. And I think unique about our vision of shared security is we have specked out the whole system to the extent where you can seamlessly, like just through like the standard kind of upgrading, application upgrading process that we use in Cosmos, both join a, a, a interchain security without disrupting your IBC connections or anything, or leave interchain security. So, you know, communities are still giving the, given the, it's not like they have like, if they, if they like find the hub excessively value extractive for the security that it provides. It's very, it'll be very possible to leave.

• 1:39:00Speaker 00

  It'll be possible to go join someone else's shared security environment too. Or like be your own sovereign app chain. And so like, again, this is like a long-term commitment. We're creating market forces in Cosmos that ensure that this is a pluralist environment and that like we are not creating any sort of artificial rent seeking. Like the hub has to really provide its value, otherwise. Will provide value, otherwise no one will do this. Because the MEV has been like MEV censorship, all of these things hugely relevant to the Ethereum community. So, so we've, we've heard a little bit about what does MEV look like in the pure app chain thesis.

• 1:39:45Speaker 00

  But one of the things that we, you know, I've talked a lot about with the MEV, you know, Flashbot's teams, we also have very good MEV teams inside of Cosmos, Skip and Mecatech, who are, you know, doing also like building, you know, businesses around MEV in the Cosmos. And one of the things that we've been talking about most, one of the things that like is built into it is again, we don't think transaction fees will ever be high. Like, we don't think transaction fees will be a meaningful amount of revenue. But, you know, in a world where there's like Atom, USDC, other assets that are major fiat

• 1:40:30Speaker 00

  or onramps between Cosmos into the Cosmos ecosystem, at least one hop of every economic sort of loop or economic activity will frequently start within, let's say, call it the Atom Economic Zone, the interchain secured area of Atom will probably be a place where a lot of economic activity originates. And the ability to sort of arbitrage that, so statistical arbitrage, not sandwiching or anything, but just knowing, hey, someone has minted a whole bunch of USDC and we see them issuing an IVC packet, that kind of information is likely to be valuable, that block space is likely to be valuable.

• 1:41:12Speaker 00

  So one of the things that we're proposing in the, in the, in the Hub 2.0 white paper is that like one of the, again, applications on the Hub is this block space market that any chain in the ecosystem, whether it's interchain secured or not, can opt into participating with and say, we're actually going to package a product that is like a better product than like what Skip and Mecatech could build right now, which is guaranteed, the guaranteed ability to like have a transaction at the top of the block across many blocks over some contiguous period of time, and that the Hub is a natural place to like hold this auction and execute.

• 1:41:53David Hoffman?

  So right now Cosmos, the Adam token is coming in at 23 on CoinGecko, the total coin market cap. And it's kind of behind some tokens that I'd never really would expect it to be behind. Is it still behind Ripple? A lot of tokens are sadly behind Ripple. Litecoin is the one that comes to mind. It's right before it at 22. It doesn't make any sense to me because it's Litecoin. All it's got is Lindy. Do you guys envision that Adam actually enters the top 10 crypto assets in the future? As some given amount of time?

• 1:42:28Speaker 00

  If that doesn't happen, Adam, I will not be satisfied. Like, I will have considered that, like, the work that I've been doing will not have been a success. Like, there is a, like, I believe that this, that this, that this work that went into Adam 2.0 has created a top 10, like, when executed creates a top 10 asset. And if the market doesn't agree with me, you know, but and like there's, as a, as an entrepreneur, it's like, you go out, you bring your best ideas to the market, the market punches you in the face. And so we'll see. But yeah, that's what we're trying, that, that is, I would say that is explicitly my goal, this Adam 2.0.

• 1:43:11David Hoffman?

  Sonny, any thoughts?

• 1:43:13Speaker 03

  Yeah, I'll, I'll admit, I'm not as focused on the atom side of things. I believe, you know, I focus on the Cosmos level, at the vision, and then, you know, I'm very focused. I'm very focused on the Cosmos vision and then very focused on the Osmosis chain. We're trying to build Osmosis, we're trying to build the decentralized version of Binance. Binance is a top 10 asset, and Cosmos will be one day too.

• 1:43:36David Hoffman?

  Zachy, the Ethereum ecosystem and community, like largely on, on the page of like, yeah, we're going to flip Bitcoin one day. Do you think Cosmos is, is there a part of Cosmos that's like, Adam is going to flip ETH one day?

• 1:43:54Speaker 00

  Like, okay, so I'll, I'll, I'll, I'll just give you where my feel like I, I can only tell you my feelings, I can't. I have become really probably more despondent about Bitcoin's long-term future than I ever have been. Um, I own more ETH today than I've ever owned in the past. I own much more Atom, but I own more ETH than I've ever owned before. I'm owned more ETH than Bitcoin. Um, uh, I think Ethereum is doing a great job. Uh, and like deserves is like the better representative of the cryptocurrency community, the values that I believe in.

• 1:44:33Speaker 00

  And I feel more aligned with Ethereum than in the past. Um, and so I'm not, I, I, I don't, I, I'm not building with this with like, oh, I have to flip ETH. I wanna, I need to flip all of the shit that is between me and.

• 1:44:48Ryan Sean Adams?

  Bar is low to do that.

• 1:44:52Ryan Sean Adams?

  There's a lot of it. Guys, this has been a, a lot of fun and I, I really feel like, um, listeners at the end of this episode will, uh, understand the Cosmos ecosystem so much more, including, uh, how it's going to evolve in the future. And, uh, what's so interesting to me is these two communities, Ethereum and Cosmos is like, you see Ethereum veering towards Cosmos, right? Getting more into app chains, this sort of thing. You also see in places Cosmos veering more towards, uh, Ethereum, at least with Adams and kind of monetary policy improvements. And, you know, it's, uh, interesting to see these two communities. One thing I've respected out of both is, uh, they are both a community of builders. Like you guys are just, Cosmos is building a lot and it's hard to be bearish

• 1:45:34Ryan Sean Adams?

  on builder activity. When you get 1,500 people at a conference in a bear market and you know they're there because they think they're building something cool. Uh, that is special and that is certainly something to watch. So, uh, we're definitely watching it at Bankless. I guess last question for you both. So let's fast forward, you know, five years into the future, 10 years into the future. Where do you think Cosmos ends up? What does crypto look like and what does the Cosmos ecosystem look like? Maybe five years into the future or 10 years from the future, or just any point in time where you feel like the vision is fulfilled. Zaki, over to you.

• 1:46:13Speaker 00

  In so, okay, so I mean, my, my expectation is, is that by the time the vision is fulfilled, most people who use cryptocurrency based technologies will kind of not really know whether or not they're using a Cosmos thing, an Ethereum thing, and Solana thing. And hopefully, what I want is them just to have used, be used a thing where they're, where they are not being exploited, where there's not being front rated, where they're part, where, where, where digital mar- okay, so like this, this comes down to the question, I think, which, you know, I have a good way of articulating now. Digital markets in the future will be all markets, and I'm building for a future in which digital markets are open source public goods.

• 1:46:58Speaker 00

  That's like flat out what I'm trying to accomplish. I don't really care about anything else. I just view the tools we've built as Cosmos as an essential part of getting there. I also think Ethereum largely shares this vision, and so feel very aligned with Ethereum. But like, so if we're successful, we will have open source digital markets that provide economic coordination for the entire human race. And it like works, it's, you know, and no one is exploiting or extracting red sea because you can't. And that is the world that like is, that is the utopia.

• 1:47:31Ryan Sean Adams?

  Open source digital markets, that's Zaki's utopia. What's yours, Sonny?

• 1:47:35Speaker 03

  Mine is for a long, you know, like I mentioned, I've always, I really love organic Hayekian systems and part of the, I, I think that like build, rebuilding the infrastructures of society away from these like very top down organized systems to like bottom up localized, yeah, localized systems where, you know, people make bilateral treaties, multilateral treaties, build communities and organize, you know.

• 1:48:05Speaker 03

  It it you know, it it meshes all the way up, right? And I I really believe in ideas like a web of trust-based systems, um, you know, I started working on, one of the reasons I started working on Cosmos was I I just thought that, you know, I I really wanted to work on proof of stake and I, you know, I was working on that, you know, I saw that I thought the Cosmos team was the most like, uh, you know, most farthest along on proof of stake, actually. And so, and I, they were, uh, and so now that like, you know, as of last month or two weeks ago, over 50% of market cap is running on proof of stake. I'm like, that's awesome. But now what's like the next thing? I think there's like, I think there's things we can do even better than proof of stake. I I really believe there's like a world where we can build like a web of trust-based consensus protocol that will actually be even more decentralized than proof of stake.

• 1:48:50Speaker 03

  Um, and I think there's like a lot of like, I don't know, I just want to keep ta- tearing down like centralized or even, you know, high levels of communication required systems and build more organic mesh systems.

• 1:49:07David Hoffman?

  So, Abankless, we use the metaphor of exploring the frontier quite frequently, and the Cosmos name actually is very conducive to this. So say a listener has listened to this and they're they're on board and they want to go explore the Cosmos. Uh, in Ethereum, we have like MetaMask. You gotta have MetaMask. Uh, what what's the toolkit for people that need, they what what's the toolkit that they need to be equipped with to go explore the Cosmos first? What's what's like the MetaMask of Cosmos or just like, what are the tools that listeners should probably start with in order to go explore Cosmos?

• 1:49:41Speaker 03

  You should go get a Kepler wallet, which is actually built by our team, uh, but you, you know, go on a centralized exchange, buy Atom, which is the, you know, entry point into Cosmos today. You IBC it to Osmosis, do a swap for a token called Stars. You IBC it to Stargaze and go buy your first Bad Kids NFT. That's your, that's, you know, that's your onboarding path. That's your to-do list.

• 1:50:07David Hoffman?

  Cool.

• 1:50:08Speaker 03

  Yeah, and and like,

• 1:50:11Speaker 00

  I think if you just look at that, okay, you've got like an NFT app, an onboarding place, a a a a DEX and just use that experience and say, hey, is this, how do, how different does this feel from Ethereum, but then go look at how much you spent on gas.

• 1:50:28Speaker 03

  And we're getting that, we're getting it better. Right now, each of those steps requires a click and, you know, our, I place on osmosis, our view is that every click loses half of our users. And so we're working on a lot of the tooling to like, make that entire process feel like one click.

• 1:50:44David Hoffman?

  Guys, what, what we'll do is, uh, after the show, before this is actually published, so by the time you're listening to this, Bankless listener, we will have a little tutorial for everything Sunny just said that we can link to on the Bankless, uh, website. So, uh, you could see Sunny and Zaki's ideas on how to get started with Cosmos and start exploring the Cosmos. Guys, this has been a lot of fun. Thank you so much for joining us.

• 1:51:06Speaker 00

  Thank you.

• 1:51:08David Hoffman?

  Action items for you Bankless listeners. The first is, we'll include a link to the Cosmos 2.0, Adam 2.0 white paper. Check that out. Also, referenced was the inevitability of Unichain, an article by Dan Elitzer. And of course, we'll include a link that I just mentioned to that tactic on how to get started with Cosmos. And this is for Zaki and Sunny. If you guys are willing, a thing that we've been doing is having our guests actually read out our outro of risks and disclaimers.

• 1:51:35Speaker 03

  Crypto is risky. You can lose what you put in, but we're heading west. This is the frontier.

• 1:51:40Speaker 00

  It isn't for everyone, but you're, we're glad you're with us on the Bankless journey. Thanks a lot.

• 1:51:45David Hoffman?

  Hey, we hope you enjoyed the video. If you did, head over to Bankless HQ right now to develop your crypto investing skills and learn how to free yourself from banks and gain your financial independence. We recommend joining our daily newsletter, podcast, and community as a Bankless premium subscriber to get the most out of your Bankless experience. You'll get access to our market analysis, our alpha leaks, and exclusive content, and even the Bankless token for airdrops, raffles, and unlocks. If you're interested in crypto, the Bankless community is where you want to be. Click the link in the description to become a Bankless premium subscriber today. Also, don't forget to subscribe to the channel for in-depth interviews with industry leaders, Ask Me Anythings, and weekly rollups where

• 1:52:28David Hoffman?

  we summarize the week in crypto and other fantastic content. Thanks everyone for watching and being on the journey as we build out the Bankless nation.